QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended
March 31, 2012

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-16783

___________________________________________________

VCA Antech, Inc.

(Exact name of registrant as specified in its charter)

Delaware

95-4097995

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

12401 West Olympic Boulevard

Los Angeles, California 90064-1022

(Address of principal executive offices)

(310) 571-6500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ].

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ].

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer [X]

Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common stock, $0.001 par value,
87,500,630
shares as of May 2, 2012.

Common stock, par value $0.001, 175,000 shares authorized, 87,498 and 86,796 shares outstanding as of March 31, 2012 and December 31, 2011, respectively

87

87

Additional paid-in capital

378,609

361,715

Retained earnings

780,903

745,658

Accumulated other comprehensive income

1,482

418

Total VCA Antech, Inc. stockholders’ equity

1,161,081

1,107,878

Noncontrolling interests

10,214

10,074

Total equity

1,171,295

1,117,952

Total liabilities and equity

$

2,129,591

$

1,995,368

The accompanying notes are an integral part of these condensed, consolidated financial statements.

1

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Income Statements

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended
March 31,

2012

2011

Revenue

$

409,465

$

355,123

Direct costs

316,086

275,345

Gross profit

93,379

79,778

Selling, general and administrative expense

39,051

26,183

Net loss on sale of assets

523

89

Operating income

53,805

53,506

Interest expense, net

4,087

4,019

Business combination adjustment gain

(5,719

)

—

Other (income) expense

(207

)

58

Income before provision for income taxes

55,644

49,429

Provision for income taxes

19,323

18,933

Net income

36,321

30,496

Net income attributable to noncontrolling interests

1,076

1,657

Net income attributable to VCA Antech, Inc

$

35,245

$

28,839

Basic earnings per share

$

0.41

$

0.33

Diluted earnings per share

$

0.40

$

0.33

Weighted-average shares outstanding for basic earnings per share

86,984

86,355

Weighted-average shares outstanding for diluted earnings per share

88,055

87,245

The accompanying notes are an integral part of these condensed, consolidated financial statements.

2

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Comprehensive Income

(Unaudited)

(In thousands)

Three Months Ended
March 31,

2012

2011

Net income
(1)

$

36,321

$

30,496

Other comprehensive income:

Foreign currency translation adjustments

927

249

Unrealized gain on foreign currency

225

189

Tax expense

(88

)

(73

)

Other comprehensive income

1,064

365

Total comprehensive income

37,385

30,861

Comprehensive income attributable to noncontrolling interests
(1)

(1,076

)

(1,657

)

Comprehensive income attributable to VCA Antech, Inc

$

36,309

$

29,204

____________________________

(1)

Includes approximately
$510 thousand
and
$1.2 million
of net income related to redeemable and mandatorily redeemable noncontrolling interests for the
three
months ended
March 31, 2012
and
March 31, 2011
, respectively.

The accompanying notes are an integral part of these condensed, consolidated financial statements.

The accompanying notes are an integral part of these condensed, consolidated financial statements.

4

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Three Months Ended
March 31,

2012

2011

Cash flows from operating activities:

Net income

$

36,321

$

30,496

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

16,562

13,380

Amortization of debt issue costs

322

388

Provision for uncollectible accounts

1,146

1,297

Business combination adjustment gain

(5,719

)

—

Net loss on sale of assets

523

89

Share-based compensation

4,183

1,068

Deferred income taxes

4,212

8,035

Excess tax benefit from exercise of stock options

(187

)

(185

)

Other

(391

)

(358

)

Changes in operating assets and liabilities:

Trade accounts receivable

(4,606

)

(6,933

)

Inventory, prepaid expense and other assets

(2,939

)

1,417

Accounts payable and other accrued liabilities

814

(8,120

)

Accrued payroll and related liabilities

10,725

10,734

Income taxes

12,698

9,922

Net cash provided by operating activities

73,664

61,230

Cash flows from investing activities:

Business acquisitions, net of cash acquired

(65,472

)

(5,812

)

Real estate acquired in connection with business acquisitions

—

(1,200

)

Property and equipment additions

(16,072

)

(12,034

)

Proceeds from sale of assets

36

22

Other

193

(131

)

Net cash used in investing activities

(81,315

)

(19,155

)

Cash flows from financing activities:

Repayment of debt

(34,626

)

(7,301

)

Proceeds from issuance of long-term debt

50,000

—

Proceeds from revolving credit facility

50,000

—

Repayment of revolving credit facility

(50,000

)

—

Payment of financing costs

(101

)

—

Distributions to noncontrolling interest partners

(719

)

(652

)

Proceeds from issuance of common stock under stock option plans

2,621

1,175

Excess tax benefit from exercise of stock options

187

185

Stock repurchases

(579

)

(2,337

)

Other

(151

)

—

Net cash provided by (used in) financing activities

16,632

(8,930

)

Effect of currency exchange rate changes on cash and cash equivalents

84

128

Increase in cash and cash equivalents

9,065

33,273

Cash and cash equivalents at beginning of period

63,651

97,126

Cash and cash equivalents at end of period

$

72,716

$

130,399

5

VCA Antech, Inc. and Subsidiaries

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

Supplemental disclosures of cash flow information:

Interest paid

$

3,854

$

3,778

Income taxes paid

$

1,877

$

976

Supplemental schedule of noncash investing and financing activities:

Detail of acquisitions:

Fair value of assets acquired

$

136,579

$

5,350

Fair value of pre-existing investment in AVC

(11,850

)

—

Noncontrolling interest

(6,071

)

—

Cash paid for acquisitions

(65,273

)

(5,150

)

Cash paid to debt holders

(25,915

)

—

Issuance of common stock for acquisitions

(10,500

)

—

Holdbacks

(1,275

)

(200

)

Liabilities assumed

$

15,695

$

—

The accompanying notes are an integral part of these condensed, consolidated financial statements.

6

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements

March 31, 2012

(Unaudited)

1.

Nature of Operations

Our company, VCA Antech, Inc. (“VCA”) is a Delaware corporation formed in 1986 and is based in Los Angeles, California. We are an animal healthcare company with the following four operating segments: animal hospitals (“Animal Hospital”), veterinary diagnostic laboratories (“Laboratory”), veterinary medical technology (“Medical Technology”) and Vetstreet.

Our animal hospitals offer a full range of general medical and surgical services for companion animals. Our animal hospitals treat diseases and injuries, provide pharmaceutical products and perform a variety of pet-wellness programs, including health examinations, diagnostic testing, vaccinations, spaying, neutering and dental care. At
March 31, 2012
, we operated
589
animal hospitals throughout
41
states and in Canada.

We operate a full-service veterinary diagnostic laboratory network serving all
50
states and certain areas in Canada. Our laboratory network provides sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At
March 31, 2012
, we operated
53
laboratories of various sizes located strategically throughout the United States and Canada.

Our Medical Technology business sells digital radiography and ultrasound imaging equipment, provides education and training on the use of that equipment, provides consulting and mobile imaging services, and sells software and ancillary services to the veterinary market.

Our Vetstreet business provides online communications, professional education, marketing solutions and an ecommerce platform for independent animal hospitals. In addition, Vetstreet.com provides a robust selection of products, information and services to the pet-owning community.

The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of flea infestation, heartworms and ticks, and the number of daylight hours.

2.

Basis of Presentation

Our accompanying unaudited, condensed, consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements as permitted under applicable rules and regulations. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012. For further information, refer to our consolidated financial statements and notes thereto included in our 2011 Annual Report on Form 10-K.

The preparation of our condensed, consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in our condensed, consolidated financial statements and notes thereto. Actual results could differ from those estimates.

3.

Goodwill and Other Intangible Assets

Goodwill

The following table presents the changes in the carrying amount of our goodwill for the three months ended
March 31, 2012
(in thousands):

7

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

3.

Goodwill and Other Intangible Assets, continued

Animal

Hospital

Laboratory

All Other

Total

Balance as of December 31, 2011

$

1,035,401

$

96,810

$

105,396

$

1,237,607

Goodwill acquired

92,264

8

10,075

102,347

Other
(1)

(1,565

)

13

167

(1,385

)

Balance as of March 31, 2012
(2)

$

1,126,100

$

96,831

$

115,638

$

1,338,569

____________________________

(1)

Other includes acquisition-price adjustments, which consist primarily of an adjustment related to capital leases, buy- outs and foreign currency translation adjustments.

(2)

Net of accumulated impairment losses of $
21.3 million
, all related to our medical technology business included in "All Other" in the above table.

We had
no
impairment losses during the three months ended
March 31, 2012
.

Other Intangible Assets

Our amortizable intangible assets at
March 31, 2012
and
December 31, 2011
are as follows (in thousands):

The estimated amortization expense related to intangible assets for the remainder of
2012
and each of the succeeding years thereafter as of
March 31, 2012
is as follows (in thousands):

8

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

3.

Goodwill and Other Intangible Assets, continued

Remainder of 2012

$

16,198

2013

19,348

2014

17,022

2015

15,157

2016

11,933

Thereafter

32,627

Total

$

112,285

4.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

March 31,
2012

December 31,
2011

Deferred revenue

$

10,248

$

7,025

Accrued health insurance

5,722

5,553

Deferred rent

4,023

3,626

Accrued consulting fees

2,886

2,886

Holdbacks and earnouts

3,336

2,250

Customer deposits

2,339

2,281

Accrued lab service rebates

192

332

Other

25,656

20,015

$

54,402

$

43,968

5.

Long-Term Obligations

Senior Credit Facility

On January 25, 2012, we executed an amendment (the "first amendment") to our Amended and Restated Credit and Guaranty Agreement entered into as of August 16, 2011 (our "senior credit facility"). On January 24, 2012, we issued new term loans in the aggregate principal amount of
$50.0 million
, which reduced the amount of uncommitted incremental facilities we could thereafter elect to request from
$100.0 million
in the aggregate to
$50.0 million
in the aggregate. The aforementioned amendment on January 25, 2012 replenished the aggregate principal amount of uncommitted incremental facilities by
$50.0 million
to permit us to request up to an aggregate principal amount of
$100.0 million
in uncommitted incremental facilities. The funds borrowed from the Incremental Facility were used to repay in full amounts borrowed to fund an additional investment in Associate Veterinary Clinics (1981) LTD ("AVC") on February 1, 2012. In connection with the first amendment we incurred
$122,300
in financing costs, of which approximately
$47,300
were recognized as part of income from continuing operations and
$75,000
were capitalized as deferred financing costs.

The following table summarizes our long-term obligations at
March 31, 2012
and
December 31, 2011
(in thousands):

March 31,
2012

December 31,
2011

Revolver

$

—

$

—

Senior term notes at the Adjusted Eurodollar rate + 1.75% (2.00% at March 31, 2012)

616,094

573,984

Other debt and capital lease obligations

40,724

44,869

Total debt obligations

656,818

618,853

Less - current portion

(34,920

)

(32,571

)

$

621,898

$

586,282

9

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

5.

Long-Term Obligations, continued

Interest Rate.
In general, borrowings under the senior term notes and the revolving credit facility bear interest, at our option, on either:

•

the base rate (as defined below) plus the applicable margin. The applicable margin for a base rate loan is an amount equal to the applicable margin for Eurodollar rate (as defined below) minus 1.00%; or

•

the adjusted Eurodollar rate (as defined below) plus a margin of
1.75%
(Level II, see table below) per annum until the date of delivery of the compliance certificate and the financial statements for the period ending
March 31, 2012
, at which time the applicable margin will be determined by reference to the leverage ratio in effect from time to time as set forth in the following table:

Level

Leverage Ratio

Applicable Margin for

Eurodollar Rate Loans

Applicable Revolving

Commitment Fee %

I

≥ 2.50:1.00

2.25%

0.50%

II

< 2.50:1.00 and ≥ 1.75:1.00

1.75%

0.375%

III

< 1.75:1.00 and ≥ 1.00:1.00

1.50%

0.25%

IV

< 1.00:1.00

1.25%

0.20%

The base rate for the senior term notes is a rate per annum equal to the greatest of Wells Fargo Bank, N.A. ("Wells Fargo") prime rate in effect on such day, the Federal funds effective rate in effect on such day plus 0.5% and the adjusted Eurodollar rate for a one-month interest period commencing on such day plus 1.0%. The adjusted Eurodollar rate is defined as the rate per annum obtained by dividing (1) the rate of interest offered to Wells Fargo on the London interbank market by (2) a percentage equal to 100% minus the stated maximum rate of all reserve requirements applicable to any member bank of the Federal Reserve System in respect of “Eurocurrency liabilities.”

Maturity and Principal Payments
. The amended and restated senior term notes mature on
August 19, 2016
. Principal payments on the senior term notes are paid quarterly in the amount of
$7.9 million
for the first six quarters beginning on June 30, 2012, quarterly payments of
$11.8 million
for the two years following, and quarterly payments of
$15.8 million
for the three quarters prior to maturity at which time the remaining balance is due. The following table sets forth the remaining scheduled principal payments for our senior term notes (in thousands):

2012 (1)

$

23,672

2013

35,508

2014

47,344

2015

51,289

2016

458,281

Thereafter

—

Total

$

616,094

____________________________

(1)

Relates to the period from April 1, 2012 through December 31, 2012.

The revolving credit facility matures on
August 19, 2016
. Principal payments on the revolving credit facility are made at our discretion with the entire unpaid amount due at maturity.

Guarantees and Security.
We and each of our wholly-owned subsidiaries guarantee the outstanding debt under our senior credit facility. These borrowings, along with the guarantees of the subsidiaries, are further secured by substantially all of our consolidated assets. In addition, these borrowings are secured by a pledge of substantially all of the capital stock, or similar equity interests, of our wholly-owned subsidiaries.

10

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

6.

Fair Value Measurements

Fair Value of Financial Instruments

The FASB accounting guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the accompanying condensed, consolidated balance sheets. Fair value as defined by the guidance is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value estimates of financial instruments are not necessarily indicative of the amounts we might pay or receive in actual market transactions. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents.
These balances include cash and cash equivalents with maturities of less than three months. The carrying amount approximates fair value due to the short-term maturities of these instruments.

Receivables, Less Allowance for Doubtful Accounts, Accounts Payable and Certain Other Accrued Liabilities.
Due to their short-term nature, fair value approximates carrying value.

Long-Term Debt.
The fair value of debt at
March 31, 2012
and
December 31, 2011
is based upon the ask price quoted from an external source, which is considered a Level 2 input.

At
March 31, 2012
and
December 31, 2011
, we did not have any material applicable nonrecurring measurements of nonfinancial assets and nonfinancial liabilities.

7.

Share-Based Compensation

Stock Option Activity

A summary of our stock option activity for the
three
months ended
March 31, 2012
is as follows (in thousands):

Stock

Options

Weighted-

Average

Exercise

Price

Outstanding at December 31, 2011

3,776

$

16.92

Granted

—

$

—

Exercised

(172

)

$

15.20

Canceled

(39

)

$

20.13

Outstanding at March 31, 2012

3,565

$

16.96

Exercisable at March 31, 2012

2,671

$

17.29

Vested and expected to vest at March 31, 2012

3,525

$

16.98

There were no stock options granted during the three months ended
March 31, 2012
. The aggregate intrinsic value of our stock options exercised during the three months ended
March 31, 2012
was
$1.1
million, and the actual tax benefit realized on options exercised during this period was
$450,000
.

At
March 31, 2012
there was
$3.8 million
of total unrecognized compensation cost related to our stock options. This cost is expected to be recognized over a weighted-average period of
3.5 years
.

11

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

7.

Share-Based Compensation, continued

The compensation cost that has been charged against income for stock options for the
three
months ended
March 31, 2012
and
2011
was
$474,000
and
$347,000
, respectively. The corresponding income tax benefit recognized was
$186,000
and
$136,000
for the three months ended
March 31, 2012
and
2011
, respectively.

Nonvested Stock Activity

During the three months ended
March 31, 2012
we granted
36,112
shares of nonvested common stock as incentives to certain employees. Assuming continued service through each vesting date, the majority of these awards will vest in four equal annual installments beginning
February 2013
through
April 2016
.

Total compensation cost charged against income related to nonvested stock awards was
$3.7 million
and
$721,000
for the three months ended
March 31, 2012
and
2011
, respectively. The corresponding income tax benefit recognized in the income statement was
$1.5 million
and
$281,000
for the three months ended
March 31, 2012
and
2011
, respectively.

At
March 31, 2012
, there was
$19.5 million
of unrecognized compensation cost related to these nonvested shares, which will be recognized over a weighted-average period of
3.1 years
. A summary of our nonvested stock activity for the three months ended
March 31, 2012
is as follows:

Shares

Grant Date

Weighted-

Average Fair

Value

Per Share

Outstanding at December 31, 2011

1,516

$

20.76

Granted

36

$

22.85

Vested

(84

)

$

30.22

Forfeited/Canceled

2

$

25.10

Outstanding at March 31, 2012

1,470

$

20.27

8.

Calculation of Earnings per Share

Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income attributable to VCA Antech, Inc. by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):

Three Months Ended
March 31,

2012

2011

Net income attributable to VCA Antech, Inc

$

35,245

$

28,839

Weighted-average common shares outstanding:

Basic

86,984

86,355

Effect of dilutive potential common shares:

Stock options

560

690

Nonvested shares

511

200

Diluted

88,055

87,245

Basic earnings per share

$

0.41

$

0.33

Diluted earnings per share

$

0.40

$

0.33

For the three months ended
March 31, 2012
and
2011
, potential common shares of
1,067,063
and
46,270
, respectively, were excluded from the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

12

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

9.

Lines of Business

Our reportable segments are Animal Hospital and Laboratory. Our Animal Hospital segment provides veterinary services for companion animals and sells related retail and pharmaceutical products. Our Laboratory segment provides diagnostic laboratory testing services for veterinarians, both associated with our animal hospitals and those independent of us. Our other operating segments included in “All Other” in the following tables are our Medical Technology business, which sells digital radiography and ultrasound imaging equipment, related computer hardware, software and ancillary services to the veterinary market and our Vetstreet and ThinkPets businesses, which provides online communications, professional education, marketing solutions to the veterinary community and an ecommerce platform for independent animal hospitals. In addition, Vetstreet.com provides a selection of products, information and services to the pet-owning community. These operating segments do not meet the quantitative or qualitative requirements for reportable segments. Our operating segments are strategic business units that have different services, products and/or functions. The segments are managed separately because each is a distinct and different business venture with unique challenges, risks and rewards. We also operate a corporate office that provides general and administrative support services for our other segments.

The accounting policies of our segments are essentially the same as those described in the summary of significant accounting policies included in our
2011
Annual Report on Form 10-K. We evaluate the performance of our segments based on gross profit and operating income. For purposes of reviewing the operating performance of our segments all intercompany sales and purchases are generally accounted for as if they were transactions with independent third parties at current market prices.

The following is a summary of certain financial data for each of our segments (in thousands):

13

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

9.

Lines of Business, continued

Animal

Hospital

Laboratory

All Other

Corporate

Intercompany

Eliminations

Total

Three Months Ended
March 31, 2012

External revenue

$

316,125

$

71,971

$

21,369

$

—

$

—

$

409,465

Intercompany revenue

—

12,759

4,956

—

(17,715

)

—

Total revenue

316,125

84,730

26,325

—

(17,715

)

409,465

Direct costs

270,569

44,179

17,658

—

(16,320

)

316,086

Gross profit

45,556

40,551

8,667

—

(1,395

)

93,379

Selling, general and administrative expense

7,057

7,598

9,283

15,113

—

39,051

Net loss (gain) on sale and disposal of assets

505

(7

)

8

17

—

523

Operating income (loss)

$

37,994

$

32,960

$

(624

)

$

(15,130

)

$

(1,395

)

$

53,805

Depreciation and amortization

$

11,344

$

2,553

$

2,263

$

764

$

(362

)

$

16,562

Property and equipment additions

$

10,766

$

1,067

$

1,722

$

2,983

$

(466

)

$

16,072

Three Months Ended
March 31, 2011

External revenue

$

269,941

$

69,096

$

16,086

$

—

$

—

$

355,123

Intercompany revenue

—

10,453

3,010

—

(13,463

)

—

Total revenue

269,941

79,549

19,096

—

(13,463

)

355,123

Direct costs

230,388

42,819

14,638

—

(12,500

)

275,345

Gross profit

39,553

36,730

4,458

—

(963

)

79,778

Selling, general and administrative expense

6,083

6,636

3,556

9,908

—

26,183

Net loss on sale and disposal of assets

78

11

—

—

—

89

Operating income (loss)

$

33,392

$

30,083

$

902

$

(9,908

)

$

(963

)

$

53,506

Depreciation and amortization

$

9,873

$

2,471

$

657

$

680

$

(301

)

$

13,380

Property and equipment additions

$

9,535

$

1,236

$

759

$

958

$

(454

)

$

12,034

At March 31, 2012

Total assets

$

1,563,615

$

243,220

$

229,372

$

116,748

$

(23,364

)

$

2,129,591

At December 31, 2011

Total assets

$

1,439,103

$

232,423

$

202,187

$

142,793

$

(21,138

)

$

1,995,368

14

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

10.

Commitments and Contingencies

We have certain commitments, including operating leases and acquisition agreements. These items are discussed in detail in our consolidated financial statements and notes thereto included in our
2011
Annual Report on Form 10-K. We also have contingencies as follows:

a.

Earn-Out Payments

We have contractual arrangements in connection with certain acquisitions that were accounted for under previous business combinations accounting guidance, whereby additional cash may be paid to former owners of acquired companies upon attainment of specified financial criteria as set forth in the respective agreements. The amount to be paid cannot be determined until the earn-out periods expire and the attainment of criteria is established. If the specified financial criteria are attained we will be obligated to pay approximately, an additional
$761,000
. Under the current business combination accounting guidance contingent consideration, such as earn-out liabilities, are recognized as part of the consideration transferred on the acquisition date and a corresponding liability is recorded based on the fair value of the liability if the fair value is known or determinable. The changes in fair value are recognized in earnings where applicable at each reporting period.

b.

Other Contingencies

We have certain contingent liabilities resulting from litigation and claims incident to the ordinary course of our business. We believe that the probable resolution of such contingencies will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

11.

Income Taxes

The effective rate for the three months ended March 31, 2012 was
35.4%
, as compared to
44.3%
at December 31, 2011. The decrease in rate is in part due to the non-taxable gain of $
5.7 million
related to the increase in value of our historic noncontrolling interest in AVC realized upon the acquisition of the remaining equity interest.

12.

Noncontrolling Interests

We own some of our animal hospitals in partnerships with noncontrolling interest holders. We consolidate our partnerships in our consolidated financial statements because our ownership interest in these partnerships is equal to or greater than
50.1%
and we control these entities. We record noncontrolling interest in income of subsidiaries equal to our partners’ percentage ownership of the partnerships’ income. We also record changes in the redemption value of our redeemable noncontrolling interests in net income attributable to noncontrolling interests in our condensed, consolidated income statements. We reflect our noncontrolling partners’ cumulative share in the equity of the respective partnerships as either noncontrolling interests in equity, mandatorily redeemable noncontrolling interests in other liabilities or redeemable noncontrolling interests in temporary equity (mezzanine).

a.

Mandatorily Redeemable Noncontrolling Interests

The terms of some of our partnership agreements require us to purchase the partner’s equity in the partnership in the event of the partner’s death. We report these redeemable noncontrolling interests at their estimated redemption value and classify them as liabilities due to the certainty of the related event. We recognize redemption value changes in the obligation in interest expense. At
March 31, 2012
and
December 31, 2011
, these liabilities were
$9.4 million
and
$3.1 million
, respectively, and are included in other liabilities in our consolidated balance sheets.

b.

Redeemable Noncontrolling Interests

We also enter into partnership agreements whereby the minority partner is issued certain “put” rights. These rights are normally exercisable at the sole discretion of the minority partner. We report these redeemable noncontrolling interests at their estimated redemption value and classify them in temporary equity (mezzanine). We recognize changes in the obligation in net income attributable to noncontrolling interests.

15

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

12.

Noncontrolling Interests, continued

The following table provides a summary of redeemable noncontrolling interests (in thousands):

Income

Statement

Impact

Redeemable

Noncontrolling

Interests

Balance as of December 31, 2010

$

5,799

Noncontrolling interest

$

193

Redemption value change

402

595

Formation of noncontrolling interests

—

Distribution to noncontrolling interests

(176

)

Balance as of March 31, 2011

$

6,218

Balance as of December 31, 2011

$

6,964

Noncontrolling interest

$

210

Redemption value change

(34

)

176

Formation of noncontrolling interests

—

Distribution to noncontrolling interests

(190

)

Balance as of March 31, 2012

$

6,950

13.

Recent Accounting Pronouncements

In June 2011, the FASB finalized the accounting guidance for the Presentation of Comprehensive Income. The objective of the new guidance is to improve the comparability, consistency, and transparency of financial reporting, to increase the prominence of the items reported in other comprehensive income and to facilitate convergence of GAAP and IFRS. The guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholder's equity and requires that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of which option is chosen it is required that reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the face of the financial statements.

The new guidance does not change the following: the items that must be reported in other comprehensive income; when an item of other comprehensive income must be reclassified to net income; the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects with a single amount shown for aggregate income tax expense; and does not affect how earnings per share is calculated or presented.

The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. Early adoption is permitted. The adoption of the new disclosure requirements will have no effect on our consolidated financial statements other than the changes to presentation outlined.

In December 2011, the FASB deferred the effective date for amendments to the presentation of reclassifications of items out of accumulated other comprehensive income. The effective date deferral is to allow the FASB to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income.

In September 2011, the FASB amended the accounting guidance on Intangibles--Goodwill and Other - Testing Goodwill for Impairment. The objective of this guidance is to reduce the cost and complexity of performing the annual goodwill impairment test and to improve the previous guidance by expanding the examples of events and circumstances that an entity should consider in the qualitative evaluation about the likelihood of goodwill impairment. The amendments allow an entity the option

16

VCA Antech, Inc. and Subsidiaries

Notes to Condensed, Consolidated Financial Statements (Continued)

March 31, 2012

(Unaudited)

13.

Recent Accounting Pronouncements, continued

of first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The examples of events and circumstances included in the amendment that an entity should consider in performing its qualitative assessment about whether to proceed to the first step of the goodwill impairment test supersede the examples in the existing guidance. If it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Under the amendments, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and may resume performing the qualitative assessment in any subsequent period. An entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year as previously permitted under the existing guidance. The amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of the amended goodwill impairment testing procedures will not significantly impact our consolidated financial statements.

17

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed, consolidated financial statements provided under Part I, Item I of this Quarterly report on Form 10-Q. We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this report using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should plan,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this report. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this report may turn out to be wrong. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this report will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Factors that may cause our plans, expectations, future financial condition and results to change are described throughout this report and in our Annual Report on Form 10-K, particularly in “Risk Factors,” Part I, Item 1A of that report.

The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of
May 10, 2012
, and we undertake no duty to update this information unless required by law. Shareholders and prospective investors can find information filed with the SEC after
May 10, 2012
at our website at
http://investor.vcaantech.com
or at the SEC’s website at
www.sec.gov
.

We are a leading international animal healthcare company. We provide veterinary services and diagnostic testing services to support veterinary care and we sell diagnostic imaging equipment and other medical technology products and related services to veterinarians. We also provide both online and printed communications, education and information, and analytical based marketing solutions to the veterinary community.

Our reportable segments are as follows:

•

Our Animal Hospital segment operates the largest network of freestanding, full-service animal hospitals in the United States and Canada. Our animal hospitals offer a full range of general medical and surgical services for companion animals. We treat diseases and injuries, offer pharmaceutical and retail products and perform a variety of pet wellness programs, including health examinations, diagnostic testing, routine vaccinations, spaying, neutering and dental care. At
March 31, 2012
, our animal hospital network consisted of
589
animal hospitals in
41
states and in three Canadian provinces.

•

Our Laboratory segment operates the largest network of veterinary diagnostic laboratories in the nation. Our laboratories provide sophisticated testing and consulting services used by veterinarians in the detection, diagnosis, evaluation, monitoring, treatment and prevention of diseases and other conditions affecting animals. At
March 31, 2012
, our laboratory network consisted of
53
laboratories serving all 50 states and certain areas in Canada.

Our "All Other" category includes the results of our Medical Technology, Vetstreet and ThinkPets operating segments. Each of these segments did not meet the materiality thresholds to be reported individually.

The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand for veterinary services is significantly higher during the warmer months because pets spend a greater amount of time outdoors where they are more likely to be injured and are more susceptible to disease and parasites. In addition, use of veterinary services may be affected by levels of flea infestation, heartworms and ticks, and the number of daylight hours.

Slow economic recovery and continued competition continues to impact our revenue. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause our actual results to differ from our forward-looking information.

Executive Overview

During the three months ended
March 31, 2012
, we achieved an increase in consolidated revenue primarily from acquired animal hospitals and other acquired businesses, as well as, organic growth in our animal hospital and laboratory businesses. Our Animal Hospital same-store revenue, adjusted for one additional business day, increased 2.2% for the three months ended
March 31, 2012
. Our Laboratory internal revenue increased 5.1% for the three months ended
March 31, 2012
. Improved operating results in our Animal Hospital and Laboratory business segments was largely offset by increased selling, general and

19

administrative expenses resulting in essentially flat operating income in comparison to the prior year quarter.

Financing Transaction

On January 25, 2012 we amended our Amended and Restated Credit and Guaranty Agreement, dated as of August 16, 2011. The amendment replenishes the aggregate amount of uncommitted incremental facilities available under our senior credit facility to a maximum of $100 million, after giving effect to the funding of $50 million of new term loan commitments on January 24, 2012, which were drawn in connection with the additional investment made in Associate Veterinary Clinics (1981) LTD ("AVC"), detailed below.

Acquisitions

Our growth strategy includes the acquisition of independent animal hospitals. We currently anticipate that we will acquire $75 million to $115 million of annualized Animal Hospital revenue in 2012. We also evaluate the acquisition of animal hospital chains and laboratories, or related businesses if favorable opportunities are presented. The following table summarizes the changes in the number of facilities operated by our Animal Hospital segment during the
three
months ended
March 31, 2012
. There were no laboratories acquisitions during the three months ended
March 31, 2012
:

Animal Hospitals:

Beginning of period

541

Acquisitions, excluding AVC

9

Acquisitions, merged

(2

)

AVC

44

Sold, closed or merged

(3

)

End of period

589

The following table summarizes the aggregate consideration for the nine independent animal hospitals acquired during the
three
months ended
March 31, 2012
, and the allocation of the acquisition price (in thousands):

Consideration:

Cash

$

8,988

Holdback

225

Fair value of total consideration transferred

$

9,213

Allocation of the Purchase Price:

Tangible assets

$

308

Identifiable intangible assets

1,616

Goodwill
(1)

7,289

Total

$

9,213

____________________________

(1)
We expect that $3.4 million of the goodwill recorded for these acquisitions as of
March 31, 2012
, will be deductible for income tax purposes.

Associate Veterinary Clinics (1981) LTD Investment

On January 31, 2012, we increased our investment in AVC by approximately CDN $81 million becoming the sole non-veterinarian shareholder of AVC. At the time of the additional investment, AVC operated 44 animal hospitals in three Canadian provinces, offering services ranging from primary care, to specialty referral services and 24-hour emergency care. This investment and planned additional investments in AVC will facilitate our continued expansion in the Canadian market. At the time of the investment AVC had annualized revenue of approximately CDN $95 million. Our consolidated financial statements reflect the operating results of AVC since January 31, 2012.

20

The following table summarizes the total investment and the preliminary allocation of the investment in AVC (in thousands):

Consideration:

Cash

$

48,817

Cash paid to debt holders

25,915

Fair value of total consideration transferred

$

74,732

Allocation of the Purchase Price:

Tangible assets

$

11,670

Identifiable intangible assets

14,124

Goodwill
(1)

84,983

Other liabilities assumed

(18,124

)

92,653

Noncontrolling interest

(6,071

)

Fair value of pre-existing investment in AVC

(11,850

)

Total

$

74,732

____________________________

(1)
As of
March 31, 2012
, we have not finalized the determination of the amount of goodwill that will be deductible for income tax purposes.

The allocation of the additional investment is preliminary, because certain events have not occurred or have not been completed or finalized, including but not limited to, the valuation of assets, including intangible assets, and liabilities.

The pro forma impacts on revenue and earnings have not been disclosed as the amounts were immaterial to the financial statements as a whole.

ThinkPets Inc. (“ThinkPets”)

On February 1, 2012, we acquired 100% interest in ThinkPets for $21 million, payable by delivery of 473,389 shares of VCA common stock and $10.5 million in cash. We intend to consolidate the business of ThinkPets with our Vetstreet business, which we expect will improve the products and services it offers to clients of both companies. Our consolidated financial statements reflect the operating results of ThinkPets since February 1, 2012.

The following table summarizes the preliminary purchase price and the preliminary allocation of the investment in ThinkPets (in thousands):

Consideration:

Cash

$

7,468

Issuance of common stock for acquisitions

10,500

Holdback

1,050

Fair value of total consideration transferred

$

19,018

Allocation of the Purchase Price:

Tangible assets

$

3,067

Identifiable intangible assets

7,350

Goodwill
(1)

10,075

Other liabilities assumed

(1,474

)

Total

$

19,018

____________________________

(1)
As of
March 31, 2012
, we have not finalized the determination of the amount of goodwill that will be deductible for income tax purposes.

21

The allocation of the purchase price is preliminary because certain events have not occurred or have not been completed or finalized, including but not limited to, the valuation of assets, including intangible assets, and liabilities.

The pro forma impacts on revenue and earnings have not been disclosed as the amounts were immaterial to the financial statements as a whole.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”), which require management to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that management believes to be reasonable. Actual results may differ from those estimates. Critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies, which include revenue recognition, valuation of goodwill and other intangible assets, capitalized software costs, income taxes, and self-insured liabilities can be found in our 2011 Annual Report on Form 10-K. There have been no material changes to the policies noted above as of this quarterly report on Form 10-Q for the period ended
March 31, 2012
.

Consolidated Results of Operations

The following table sets forth components of our condensed, consolidated income statements expressed as a percentage of revenue:

Consolidated revenue increased $
54.3
million for the three months ended
March 31, 2012
, as compared to the same period in the prior year primarily attributable to revenue from acquisitions including animal hospitals, Vetstreet and ThinkPets in addition to organic revenue from both our animal hospital and Laboratory operations. Excluding the impact of acquisitions, revenue increased $7.4 million primarily related to organic growth in our animal hospital and laboratory businesses.

Gross Profit

The following table summarizes our gross profit in both dollars and as a percentage of applicable revenue, or gross margin (in thousands, except percentages):

Three Months Ended March 31,

2012

2011

$

Gross

Margin

$

Gross

Margin

%

Change

Animal Hospital

$

45,556

14.4

%

$

39,553

14.7

%

15.2

%

Laboratory

40,551

47.9

%

36,730

46.2

%

10.4

%

All Other

8,667

32.9

%

4,458

23.3

%

94.4

%

Intercompany

(1,395

)

(963

)

Total gross profit

$

93,379

22.8

%

$

79,778

22.5

%

17.0

%

Consolidated gross profit increased $
13.6
million for the three months ended
March 31, 2012
, as compared to the same period in the prior year. The increase was primarily due to gross profit from our acquired animal hospitals and other businesses and organic revenue growth at our Animal Hospital and Laboratory segments.

Animal Hospital revenue increased $
46.2
million for the three months ended
March 31, 2012
, as compared to the same period in the prior year. The components of the increases are summarized in the following table (in thousands, except percentages and average revenue per order):

Three Months Ended March 31,

2012

2011

% Change

Same-store facilities:

Orders
(1)

1,649

1,660

(0.7

)%

Average revenue per order
(2)

$

166.10

$

161.35

2.9

%

Same-store revenue
(1)

$

273,864

$

267,904

2.2

%

Business day adjustment
(3)

3,467

—

Net acquired revenue
(4)

38,794

2,037

Total

$

316,125

$

269,941

17.1

%

____________________________

(1)

Same-store revenue and orders were calculated using Animal Hospital operating results, adjusted to exclude the operating results for newly acquired animal hospitals that we did not own as of the beginning of the comparable period in the prior year. Same-store revenue also includes revenue generated by customers referred from our relocated or combined animal hospitals, including those merged upon acquisition.

(2)

Computed by dividing same-store revenue by same-store orders. The average revenue per order may not calculate exactly due to rounding.

(3)

The 2012 business day adjustment reflects the impact of one additional business day in 2012 as compared to 2011.

(4)

Net acquired revenue represents the revenue from those animal hospitals acquired, net of revenue from those animal hospitals sold or closed, on or after the beginning of the comparable period, which was January 1, 2011 for the three month analysis. Fluctuations in net acquired revenue occur due to the volume, size, and timing of acquisitions and dispositions during the periods from this date through the end of the applicable period.

During the three months ended
March 31, 2012
, the slow economic recovery and the wide availability of many pet-related products, traditionally sold in our animal hospitals, in retail stores and other distribution channels such as the Internet continues to contribute to the decline in our volume of same-store orders.

In addition, our business strategy is to place a greater emphasis on comprehensive wellness visits and advanced medical procedures, which typically generate higher priced orders. The migration of lower priced orders from our animal hospitals to other distribution channels, mentioned above, and our emphasis on comprehensive wellness visits has over the past several years resulted in a decrease in lower priced orders and an increase in higher priced orders. During the three months ended
March 31, 2012
, however, we experienced a decrease in the number of both lower and higher priced orders, which we believe continues to be a consequence of the slow economic recovery, and the impact of changes in our overall business environment on the mix of procedures performed.

Price increases contributed to the increase in the average revenue per order. Prices at each of our animal hospitals are reviewed regularly and adjustments are made based on market considerations, demographics and our costs. These adjustments historically have approximated 3% to 6% on most services at the majority of our animal hospitals and are typically implemented in February of each year; price increases in 2012, however, approximated 3% to 4% on most services at the majority of our animal hospitals.

Animal Hospital gross profit is calculated as Animal Hospital revenue less Animal Hospital direct costs. Animal Hospital direct costs are comprised of all costs of services and products at the animal hospitals, including, but not limited to, salaries of veterinarians, technicians and all other animal hospital-based personnel, facilities rent, occupancy costs, supply costs, depreciation and amortization, certain marketing and promotional expense, and costs of goods sold associated with the retail sales of pet food and pet supplies.

Our combined Animal Hospital gross margin decreased to 14.4% for the three months ended
March 31, 2012
, as compared to 14.7% in the prior year period. Our same-store gross margin increased to 14.9% for the three months ended
March 31, 2012
, as compared to 14.8% for the prior year period.

The increase in same-store gross margin, for the three months ended
March 31, 2012
, was primarily due to leverage related to the increase in revenue listed above. The combined Animal Hospital gross margin was further impacted by slightly lower gross margin from our acquired animal hospitals.

24

Over the last several years we have acquired a significant number of animal hospitals. Many of these newly acquired animal hospitals have a lower gross margin at the time of acquisition than our same-store facilities. Subsequently, we have improved the gross margin at our acquired animal hospitals, in the aggregate, by reducing costs and/or increasing operating leverage.

Laboratory revenue increased $
5.2
million for the three months ended
March 31, 2012
, as compared to the same period in the prior year. The components of the changes in Laboratory revenue are detailed below (in thousands, except percentages and average revenue per requisition):

Three Months Ended
March 31,

2012

2011

% Change

Internal growth:

Number of requisitions
(1)

3,159

3,052

3.5

%

Average revenue per requisition
(2)

$

26.46

$

26.07

1.5

%

Total internal revenue
(1)

$

83,582

$

79,549

5.1

%

Billing day adjustment
(3)

1,106

Acquired revenue
(4)

42

—

Total

$

84,730

$

79,549

6.5

%

____________________________

(1)

Internal revenue and requisitions were calculated using Laboratory operating results, adjusted to exclude the operating results of acquired laboratories that we did not own as of the beginning of the comparable period in the prior year, and adjusted for the impact resulting from any differences in the number of billing days in comparable periods, if applicable.

(2)

Computed by dividing internal revenue by the number of requisitions.

(3)

The 2012 billing day adjustment reflects the impact of one additional billing day in 2012 as compared to 2011.

(4)

Acquired revenue represents the current year period revenue recognized from our acquired laboratories that we did not own as of the beginning of the comparable period in the prior year.

The increase in Laboratory revenue, for the three months ended
March 31, 2012
, was due to an increase in internal revenue primarily attributable to an increase in the number of requisitions and to a lesser extent an increase in average revenue per requisition. In prior years, requisitions from internal growth have been driven by an ongoing trend in veterinary medicine to focus on the importance of laboratory diagnostic testing in the diagnosis, early detection and treatment of diseases, and the migration of certain tests to outside laboratories that have historically been performed in animal hospitals. These factors historically have resulted in significant increases in internal requisitions, and are attributable to the increases in internal requisitions for the current year although the effects are lessened due to the slow economic recovery and the continued effects of increased competition.

The average revenue per requisition increased slightly for the three months ended
March 31, 2012
, as compared to the prior period, due to price increases in February 2012. The average revenue per requisition was also impacted by various factors including increased pricing discounts and changes in the mix, including performing lower-priced tests historically performed at the animal hospitals.

Our Laboratory gross margin increased to 47.9% for the three months ended
March 31, 2012
, as compared to 46.2% in the prior year period. The increase in gross margin was primarily due to leverage related to the increase in revenue mentioned above. Specifically, salaries and related expenses and medical supply costs increased at a lesser rate compared to increased revenue.

Intercompany Revenue

Laboratory revenue for the three months ended
March 31, 2012
, included intercompany revenue of $12.8 million, generated by providing laboratory services to our animal hospitals. For purposes of reviewing the operating performance of our segments, all intercompany transactions are accounted for as if the transaction was with an independent third party at current market prices. For financial reporting purposes, intercompany transactions are eliminated as part of our consolidation.

Selling, General and Administrative Expense

The following table summarizes our selling, general and administrative expense (“SG&A”) in both dollars and as a percentage of applicable revenue (in thousands, except percentages):